Why public accounting rules need to allow for the amortization of social investments as the antidote to austerity budgets
A version of this commentary appeared in the Globe and Mail, the Huffington Post and Times Colonist
Investing in social programs improves social conditions and, as a consequence, improves people’s lives. That’s fairly obvious. What hasn’t always been as obvious, however, is that such social spending doesn’t tend to come at the cost of economic growth. There is increasing recognition among economists that investing in human beings produces a positive return on investment.
One study of 15 European countries in the 1990s and early 2000s showed that each dollar spent in health and education can return as much as 1.7 times the original investment. By comparison, tax cuts, often cited as key for stimulating growth, actually tend to return less to the economy than is spent.
In other words, social spending can be a powerful economic stimulus at the same time as resulting in happier, healthier people. If this is the case, why don’t we invest more in improving social outcomes?
Two organizations, the J. W. McConnell Family Foundation and Upstream are formally proposing to the Public Sector Accounting Board to change how things are done to allow the amortization of evidence-based social investments to be reflected in public accounts. Here’s how it would work.
With much government spending, and particularly in relation to health, a large proportion of funding goes to responding to illness and other problems. Preventable diseases, such as diabetes and hypertension, place heavy burdens on strained healthcare budgets. Our justice system is similarly dysfunctional — imprisoning a disproportionate number of Indigenous people for whom early intervention could deliver better outcomes. Rather than acting upstream to create the conditions for good lives for Canadians, we wait for those lives to fall apart before we react.
Common sense dictates, and health economic research demonstrates, that the earlier we can intervene in addressing a problem, the less damaging and costly that problem will be and the higher the return on the investment. For example, a program that provides universal access to high quality early childhood education is an investment that pays off substantially in the long-term. The evidence from programs addressing autism, school violence, child and youth mental health, homelessness, dementia, among many others, supports the advantage of early intervention.
The impact of such large-scale interventions would be substantial, but the fruits of such investments in upstream action would not necessarily be seen immediately. The cumulative effects over the lifetime of today’s children, or those not yet born, would be one of the real measures of success. The other would be the gradual reduction in the costs of today’s social safety nets, which at present are greatly imbalanced towards late intervention or “downstream” responses.
And therein lie the objections and the obstacles to bolder social investments.
Some would lay the blame for this inertia on the political cycle, with politicians wanting to see immediate results that can get them re-elected. There is likely some truth to that, but there is also a structural, financial barrier that limits our ability to spend in the most effective way.
When a government builds a bridge or a hospital, it’s recognized that the benefits of that investment are spread out over decades, so the costs can be spread out over that same extended period. This is called amortization, and it is an essential financial tool allowing us to build expensive infrastructure now while enjoying its use over the long-term.
However, when it comes to social investments, no such option is available. All of the costs of a social program are borne in the year they are incurred. The return on that investment could be much larger, but the cost of getting started is prohibitive.
Being able to spread those early intervention investments over the lifetime of the predicted effects would allow governments to take meaningful action on the factors that improve the quality of our lives. It would allow action on the social determinants of our health and wellbeing now, rather than at some hopeful moment in the future that may never come. Yet, existing public accounting rules don’t permit government to spread their upstream investments over time — even if they demonstrably save the government money and improve the quality of life of Canadians.
Changing the public accounting rules to allow for the amortization of certain social investments is a potential antidote to austerity budgeting and short-term thinking.
Amortization for social investments would be a chance to use financial mechanisms invented for another purpose to enable us to not only build bridges of concrete, but to build bridges to a brighter future.
It’s time the Public Sector Accounting Board of Canada added a new standard for intangible assets that permits the amortization of qualifying social investments. It’s a novel approach to mobilizing the resources we need to build a country that makes the most of its greatest asset: its people.
Dr. Ryan Meili is a Family Physician in Saskatoon, an expert advisor with Evidence Network and founder of Upstream.
James Hughes is a Senior Fellow at the J.W. McConnell Family Foundation. He is a former Deputy Minister of Social Development in the Province of New Brunswick and former Director General of Quebec’s largest organization serving homeless people, the Old Brewery Mission.
This work is licensed under a Creative Commons Attribution 4.0 International License.